Consolidated Rental Car Facility Financing Update

Consolidated Rental Car Facility

Financing Update

March 5, 2009

ITEM NO. 6a-Supp

DATE OF

MEETING March 5, 2009

2

Briefing Overview

• Background

– Enplanement Forecast

– Financial Markets

• Financing Tools

– Bank Lines of Credit

– Fixed Rate Bonds

– Airport funds

• Finance Scenarios

• Next Steps

3

Background

• Project Suspended in December, 2008

– Without a clear means of economically financing continued

construction, Port Commission authorized project suspension

– Turner Construction is winding down site activity

– Project and Finance update provided on January 27, 2009

• Changes during January and February, 2009 warrant today’s briefing

– Thawing in financial markets

– Availability of additional financing tools

– Change in Airport passenger traffic forecast

4

Enplanement Forecast

• Airport is in the process of revising the enplanement growth forecast

– January enplanements decreased 6%, lower than forecast

– Airlines’ planned capacity indicates lower activity forecast

• For the purposes of today’s analysis a conservative forecast was used

Forecast in Budget Forecast for Analysis

2009 -3% -7%

2010 0% 0%

2011 0% 0%

2012 2.5% 5%

2013 until 45 MAP * 3% 3%

* MAP = million annual passengers

55

Update of Financial Markets

• Treasury yields near historically low rates

• Liquidity in the market as measured by TED Spread has returned to pre-September 2008 levels

• Market access for investment grade credits has unquestionably improved since the beginning of 2009

• Credit spreads have narrowed considerably since late 2008

– PepsiCo 10-year bonds sold at the end of October at +420 to Treasuries traded at +211 this week

– Challenges remain for lower rated investment grade credits

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

Feb

-89

Feb

-90

Feb

-91

Feb

-92

Feb

-93

Feb

-94

Feb

-95

Feb

-96

Feb

-97

Feb

-98

Feb

-99

Feb

-00

Feb

-01

Feb

-02

Feb

-03

Feb

-04

Feb

-05

Feb

-06

Feb

-07

Feb

-08

Feb

-09

Inte

rest

Ra

te

Historical Interest Rates

10 Year TSY

30 Year TSY

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

Jan

-07

Feb

-07

Ma

r-0

7

Ap

r-0

7

Ma

y-0

7

Jun

-07

Jul-

07

Au

g-0

7

Sep

-07

Oct

-07

No

v-0

7

Dec

-07

Jan

-08

Feb

-08

Ma

r-0

8

Ap

r-0

8

Ma

y-0

8

Jun

-08

Jul-

08

Au

g-0

8

Sep

-08

Oct

-08

No

v-0

8

Dec

-08

Jan

-09

Spre

ad (3-m

o L

ibor m

inus

3-m

o T

reaury

)

Historical TED Spread

6

Recent Taxable Bond Issuance

6

Issuer

Total Issue Size

($MM) Pricing Week Maturity Ratings Yield Treasury Spread

Corporate Issues:

Hewlett-Packard Co. 1,000,000,000$ 2/23/2009 2/24/2012 A2e/A/A+ 3.63% +295 bps

1,500,000,000$ 2/23/2009 6/2/2014 4.72% +285 bps

Western Union Co. 500,000,000$ 2/23/2009 2/26/2014 A3e/A-e/A-e 6.58% +475 bps

Noble Energy Inc. 1,000,000,000$ 2/23/2009 3/1/2019 Baa2e/BBB 8.12% +550 bps

Waste Management 350,000,000$ 2/23/2009 3/11/2015 Baa3/BBB/BBB 6.58% +462 bps

Arizona Public Service 500,000,000$ 2/23/2009 3/1/2019 Baa2/BBB-/BBBe 8.73% +595 bps

Municipal Issues:

Vanderbilt University 250,000,000$ 2/23/2009 4/1/2019 Aa2e/Aae/Aae 5.25% +250 bps

University of Minnesota 17,035,000$ 1/26/2009 4/1/2014 Aa2/AA 3.38% +180 bps

(Revenue Bonds) 4/1/2019 5.00% +240 bps

4/1/2029 6.00% +240 bps

Superior Sch District 9,020,000$ 2/2/2009 3/1/2014 AA- 3.65% +175 bps

(GO Bonds) 3/1/2019 5.00% +210 bps

3/1/2029 6.00% +220 bps

7

Financing Tools Appear Available

• The Port now has available to it:

– Short-term bank lines of credit up to $200 million

– Long-term, fixed-rate bonds $200-400 million

– Option of issuing non-AMT bonds for airport project funding to

conserve cash, which could be loaned to project up to $100 million

– Total resources: $500-700 million

• Can combine these tools in most appropriate manner, based on exact

terms and market conditions available when ready to issue debt

• Combinations can help balance

Certainty

Flexibility

Cost

8

Short-Term Bank lines of credit

• Two banks each willing to provide $100 million

– 2 – 3 year term

– Issued as a line of credit or a loan

– Variable interest rate currently around 3%

– Debt held by the bank, so no remarketing risk

– Can be converted to letter-of-credit backed long-term variable rate

debt as market stabilizes

9

Long-term Fixed Rate Bonds

• Taxable market currently could support issuance of Port Revenue

bonds:

– Port’s First Lien likely to attract investors for

$200 - 400 million

30 year bonds

Rates of 8 – 8.5%

– Port’s Intermediate Lien is less attractive to investors

$200 - $250 million

10 year bonds (some 30 year bonds possible)

Rates of 8 – 9%

– Fixed rate taxable bonds cannot be called without a penalty

– Port Revenue would be pledged to these bonds and they would be

paid from CFCs

– Bonds with CFC-only pledge not currently supported by the market

10

Airport Development Fund Loan

• Federal stimulus package provides AMT debt “holiday”

• Significantly improves market access

• Can more economically finance airport projects with lower cost non-

AMT bonds

• Funds can be held in reserve to re-pay a bank line

• Could loan that cash to project or used to pay down bank lines/loans

with most flexible terms of any other option

• State legislature considering statutory change to facilitate such a loan

11

Scenarios

• Assumptions used in scenarios

– Updated enplanement forecast

– Transaction day growth based on enplanement forecast

– CFC rate increases 2% per year

– CFC revenue = CFC rate X transaction days

– Life cycle analysis: CFCs pay for

Debt service

Transportation operations and maintenance

Major maintenance costs

– Project re-starts in summer 2009

Approximately $64 million spent through 2008 – cash funded

Need for debt funding over the next two years (2009-2010) estimated to be less

than $200 million

12

Scenario One: Base Case

• 2009

– $200 million 10 year fixed rate bonds

– $200 million bank lines of credit

• 2010-2011

– Repay one bank line with $100 million 10-30 year fixed rate bonds

– Convert one bank line to long-term variable rate bonds

• By 2012 the finance structure will be:

– $300 million fixed rate bonds 10-30 yrs

– $100 million variable rate bonds

• By 2019, the 10 year bonds will be refinanced

13

Scenario One: Impacts

• Estimated opening CFC: $6.50 – 7.00

• Note: major projects are typically funded with multiple bond issues

• Advantages

– Debt is issued on Intermediate Lien that was designed to

accommodate CFC funded debt

– 10 yr maturities carry lower interest rates than long term and

provide flexibility in structuring debt when refinanced

– Variable rate debt provides lower interest rates and flexibility to

refund or pay off without penalty

• Disadvantages

– Refinancing risk when bonds mature – rates could be higher or

lower

– Variable rate debt has rate fluctuations and bank exposure (with

letter of credit structure)

1414

Variable Rate Debt Component of Structure

• The short-term market has historically provided borrowers with a lower

cost of capital

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

Jan

-97

Jul-

97

Jan

-98

Jul-

98

Jan

-99

Jul-

99

Jan

-00

Jul-

00

Jan

-01

Jul-

01

Jan

-02

Jul-

02

Jan

-03

Jul-

03

Jan

-04

Jul-

04

Jan

-05

Jul-

05

Jan

-06

Jul-

06

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Inte

rest

Ra

te

Short-Term Borrowing Cost Relative to Fixed Rate Cost

20-Year Treasury

1-month LIBOR

15

Scenario Two: Maximize Certainty

• $425 million fixed rate

– 30 yr debt

– First Lien

– Note: negative carry of 100% fixed rate debt issued in 2009

requires greater use of capitalized interest and therefore more bond

proceeds

16

Scenario Two: Impacts and Issues

• Estimated opening CFC: $6.75 – 7.25

• Advantages

– Certainty of debt service over 30 years

• Disadvantages

– Uses First Lien capacity for long term

– Negative carry on full amount of debt

– No flexibility to restructure or take advantage of future market

opportunities

17

Process & Schedule

• Process

– Staff plans to begin documentation for a bond sale and for the bank lines

– Commission approval required for

Each line of credit – two readings of each resolution

Issuance of bonds – two readings of the bond resolution

Project restart

– Staff will provide updates on recommended approach to bond market prior to request for approval

• Schedule

– March – Commission briefing, begin document preparation

– April/May – Update Commission, seek approval for bonds issuance, bank line, establish Commission parameters

– May/June – initiate sale process for bonds based on Commission parameters

– June/July – receive proceeds and re-start project